and National Roaming Sharing in Telecommunications Market بسم الله الرحمن الرحيم Mohammed El Hassan Abdel Karim – March 09/March 11

Infrastructure Sharing: Though it is normally done by common consent. National Regulator Authority (NRA) may impose certain conditions at his discretion to meet certain pubic interests. “a.k.a facility sharing” is a process involving at least two Telcos to share infrastructure & essential facilities in their operations. That is mainly to:  Reduce Investment Costs,  improve quality,  diversify services,  Improve affordability,  mitigate environmental impact.  enhance competition That may include ex ante regulation for mandatory unbundling by incumbents of productive assets that are associated with high sunk entry costs.

The new Regulatory Trend supported by the ITU, WB and many entities calls for transition toward infra- structure Sharing and Service & Facility-based competition. That was declared in GSR 08 ( Thailand 2008) – six-degrees of sharing. Market players with different status resemble a state of uneven competitive advantages with wide disparities which may lead to Market Failure (inefficient prices, poor QoS, non-optimal Coverage & reduced affordability). The present world economic downturn enhanced the infrastructure sharing option to contribute to mitigate financial outlay.

Infrastructure Sharing is appreciated by Operators. A BoozAllenHamilton report shows the following  :  Telecom Infra Structure Sharing- Regulatory Enablers and Economic Benefits. Booz Allen Hamilton, 2007 India – towers are needed over the next three years. Analysis show that CAPEX savings could reach US$ 4 bn if operators exercise double tenancy on deployed sites over the 3 years. Two competing operators in the ME require 3500 tower each for optimal coverage. If they share 50% of their towers, CAPEX saving can reach US$ 250 million over 3 years time. In a fixed network sharing case, multiple cost components would be optimized if 2 or more operators share the network. Set-up costs could be reduced up to 40%, utilization cost by 20%.

Modes & Aspects of Sharing: Network Passive Elements Sharing  Towers, Masts,  Blind fiber Optic cables,  Ducts & metallic OSP. Network Active Elements Sharing  Radiating Systems,  Radio Access Link  Backhaul,  Spectrum.  Infrastructure Sharing:

Essential Facilities  Location,  Management & Support - OSS  Power and AC - PAC.  Submarine Landing Sites.  International Gateways.  Signaling Sources.  Synchronization Sources. Logistic & Administrative Facilities – ITU vision *  Storing facilities,  Civil Works.  Streamlined cross-agency processes to create a 'one-stop shop' for various network-related authorizations, such as land management, port access, environmental and safety permits. * “ Trends in Telecommunication Reform 2008: Six Degrees of Separation” – ITU, Nov 2008  Facility Sharing:

 Operational Sharing:  National Roaming & National Internet Service Providers, network tails (leased lines) and leased capacities are important forms of Operational Sharing.  While interconnection lacks competitive merits, Operational Sharing is meritorious for competition efficiency.  Operational Sharing is an important chance to implement innovative services, optimize market efficiency and dynamism.

Network (access) Unbundled local loops Wholesale line rental Backhaul access Tail segments 3 Functional Separation – Market oriented: Network (non-access) Core network services. Call origination, termination, transit etc. Leased lines. Fragmented backhaul. 2 Modes & Aspects of Separation: Retail Marketing selling services and support to end-users. 1

Service Platform Separation Value chain Separation Account Separation Operational Separation, Profession-oriented: Multi-ownership Divesture (Bell USA). Business Separation – Economics-oriented:

Sharing - New Regulatory Paradigm :  Define market powers.  Sharing rights shall be granted to all eligible players of all categories with due transparency and equity.  Incentives for players with market power and big facilities.  Restrictions and punitive measures for sharing beneficiaries who underutilize the shared portion.  Adoption of appropriate accounting method ( normally ABC - TSLRAIC ). Though sharing between operators is based primarily on mutual consent and understanding, the NRA, however, should establish a binding frame.

Sharing - New Regulatory Paradigm : It is also important to know that SHARING and SEPARATION are complementary terms. The use of any depends on which ground you are on. What is shared by a service provider is separated from another operator. Separation of a valid part of the operator’s facilities to be shared and used by another service provider demands the NRA to heed important issues, the SMP (facility supplier) shall: Not deny the right to share his facility to any legally appropriate service provider. Disclose the certified total available working capacity of his network (showing used and redundant capacity and capacities planned for immediate future use.) Guarantee same quality used for his business to be applied to the sharing party. Keep separate accounts for each of his operations, value chains, whole-sale and retail markets. He should also charge the sharing party the same charge incurred by his own service provision and defined in his accounts as operational costs.

Sharing and Sector Competition Policy Competition is normally based on services offered by the providers (service-based competition). Present policy catchword in most developing countries – no need to duplicate infra-structure! New paradigm – two fields of competition, service-based and facility-based. Consider them as complements. The reason is that infrastructure and service markets are parts of different market segments with supposed different market players. This strategy will boost the market for small telcos, virtual service providers, ISP’s and new enrants. As that would greatly reduce entry barriers (sunk costs). In competitive environment, sharing can develop new competitive strategy for market non-SMP players. The Cave’s Ladder Theory.

Scorched Land Full Competitive Advantage Rung Financial Advantage Ladder Business Advancemet Through Services. Martin Cave’s “ Ladder Theory” Time in market Services market Facilities market S F Ladder Business Advancemet Through Facilities.

National Roaming A Regulatory-controlled process -though normally, in principle, initiated by Telcos themselves- that enables a certain service provider to benefit from the network and any specific facility that belongs to another Telco to distribute his traffic and provide his own service(s) over a defined domain out of his normal reach, typically national coverage boundaries. Is an important application of the infrastructure sharing process.

A-type – Incumbent or any other significant market power (SMP) telco who have infrastructure facilities and large coverage. Normally with market lead and high competitive advantage. B-type - New Entrant teleco, normally with limited facilities, limited coverage and limited competitiveness. Taxonomy of Service Providers: C-type – Virtual Operators, licensed service providers, normally with no facilities, no coverage and poor competitiveness. (ISP’s is an assumed example).

Network A Limit of Geographical Coverage - A Area Covered A Service Provider – A Domain SUB-A REMOTE SUB - B Virtual Service Provider – C No Network (no coverage). SUB-C REMOTE SUB - C SUB - B Area Covered B Service Provider – B Domain SUB-B Network B Limit of Geographical Coverage - B Generalized Shared Roaming Model What is National Roaming ?

REMOTE SUB - B Network A Service Provider - B Service Provider - A SUB-B Network B SUB-A REMOTE SUB - A Generalized Interconnection Model IXP

REMOTE SUB - B Network A Provider - B Provider - A SUB-B Network B SUB-A REMOTE SUB - A Network A Area A Provider - A SUB-A REMOTE SUB - A REMOTE SUB - B Area B Provider - B SUB-B REMOTE SUB - B Network B Interconnection – National Roaming main difference

Why Sharing & National Roaming ? Enhance recovery of invested costs and encourage more investment. Enhance Universal Service & rural development through (transnational ) small businesses. Considerable reduction of market Entry Barriers. Efficient market entry for any player. Enrich competitiveness. May be also necessary for Regulator to apply generous access rules for new entrants. Improve investment efficiency, optimized CAPEX & OPEX. Reduce cross-industry disputes and enhance transparency. Improve economic efficiency, optimal utilization of resources.

National Roaming, Regulatory Issues:  National Roaming, in this context, enhances small and medium size business transactions. It improves network externalities and economies of scope. Adds value to network.  NRA then can base interconnection rates in whole-sale market frame.  For NRA’s, it greatly mitigates the IXn account estimations by pushing IXP downstream toward far end access. NR may even eliminate the need of IXn switch matrix to reduce the ratio of lost calls.  For NRA’s, it is a propitious chance to improve national coverage, penetration and add to customer satisfaction. Regulator should secure such goals.

Technology neutral regulation means same charges for same services provided by different types of networks. This does not always correspond to the principle of cost-based prices for Interconnection cost estimates. National Roaming mitigates this paradox by pushing IXP to remote access end. * World Dialogue for Regulation - WDR, theme 2004/2005. WDR proposition * of Stimulating Investment in Network Development: Roles for Regulators: NRA’s can reduce barriers & risk to investment and identify an increasing diversification in potential sources of network investment.

Important Regulatory Role ! Compatible and versatile Telecom Law (and enforcement powers). Easy authorization to step in the market “class licence, open entry”. Consider evolution toward facility-based competition within multi-sector regulation frame. Map and validate well-defined perspective of service categories. Regard service mushrooming.

Consider liberalization of Infrastructure & Facility market (JV. Independent firm, Regulator-centric approach). Define essential rules for modes and conditions of separation through public consultation: To support future trend of sharing and relative market development, NRA should develop clear-cut rules to regulate “Separation” in the market: Important Regulatory Role – Cont’d.

6 - Ownership separation(in whole or part) 5 - Legal separation (separate legal entities under same ownership) 4 - Business separation 3 - Virtual separation 2 - Creation of a wholesale division 1 - Accounting separation Cave’s proposal for optimally liberated market.

“The effectiveness by which this fundamental separation of basic functions is achieved will have a significant impact upon the growth of the sector. The more effective the separation, the better will be the climate to attract financing and undertake investment. If each function can be performed well, each will provide clarity and stability in an institutional framework conducive to rapid growth and effective achievement of economic and social objectives”. William H. Melody, “ref 3”

References and Recommended Readings: “Six Degrees of Separation - Operational Separation as a Remedy in European Telecommunications Regulation” Martin CAVE, Warwick Business School, Coventry. “Infodev Regulation Toolkit – Regulation Trends” ITU, Infodev. “Telecom Reform: Progress and Prospects” W. H. Melody, Delft University & LIRNE.NET “Competition in services or infrastructure-based competition?” Mats A. Bergman, Swedish Competition Authority, and Stockholm University “Telecom Infrastructure Sharing, Regulatory enablers and economic benefits” Booz Allen Hamilton Report. “Sharing telecom infrastructure” Varun Aggarwal “Infrastructure Sharing In Telecom Sector” Cellular Operators Association of India “Trends in Telecommunication Reform 2008: Six Degrees of Sharing” ITU-BDT

Voicecalls Voicecalls + Video calls Voicecalls + Video calls + Internet Voicecalls + Video calls + Internet + GPS Voicecalls + Video calls + Internet + GPS + IPTV (mTV) Voicecalls + Video calls + Internet + GPS + IPTV (mTV) + mApplications The Build-up Of Mobile Services Service Mushrooming

Local & Inter-Regional Networking Network Externalities (value-Added) HouseholdStateBusinessCorporate Basic Services SocialEconomical Meta-Services & Applications Classification of ICT Services Class of Service Generic ICT Services